Japan jobless rate hits nine-year low at 3.7%

ChrisOliver

HONG KONG (MarketWatch) -- Japan's jobless rate edged 0.1% lower in June from the previous month on a seasonally adjusted basis, hitting its lowest level in nine years, the government said Tuesday.

Japan's jobless rate declined to 3.7% in June from 3.8% a month earlier, the Ministry of Internal Affairs and Communications said in statement published on its Web site Tuesday. The jobless rate was the lowest recorded since February 1998. The result exceeded economists' expectations for no change in the unemployment rate.

The number of employed people rose 530,000, or 0.8%, to 64.91 million in June from a year earlier the ministry said. Against the preceding month, however, the employment ranks declined 80,000, marking the third straight month of declines.

"The details were not so positive," said Lehman Brothers Japan economist Hiroshi Shiraishi, "The decline in the unemployment rate is due to a decline in the size of the labor force. The labor force has been increasing in trend terms since the middle of last year, but it decreased in the past two months. He added that recent declines in labor-force size could reflect volatile data and the effects of baby boomers over the age of 60 beginning to retire.

The ratio of job offers to applicants rose to 1.07 in June from 1.06 in May, the ministry data showed. Stripping self-employed workers out of the picture, the total number of employed persons climbed 480,000 in June from a year earlier.

"All in all, today's data suggests that the conditions in the labor market continue to improve," Shiraishi said, adding he expected wage pressures to build gradually as the job market tightens.

Credit Suisse chief Japan economist Hiromichi Shirakawa said a bright spot in the labor report was continuing strength in the manufacturing and retail sectors, which added 220,000 and 130,000 jobs respectively from a year earlier.

"The fact that the manufacturing sector is stepping up its employment during a cyclical adjustment phase suggests that a recovery in industrial production may be imminent," Shirakawa said in a research note.

Other data released Tuesday showed average Japanese household spending rose 0.1% in June from a year earlier, falling short of consensus expectations of a 0.6% rise.

Household spending is considered a key indicator of underlying consumer spending, which accounts for about 55% of Japan's gross domestic product.

Shirakawa said the weaker data, coming at a time of record summer bonuses and stable department-store sales, showed consumption has remained in a slump since national holidays in early May.

He added that the softer household spending may reflect the effects of higher residence taxes, which surged 32.6% in June, and energy prices.

Other data released Tuesday showed average monthly wages, including overtime and other bonuses, declined 1.1% to 465,174 yen ($3,909) in June from a year ago, Japan's Health and Labor Ministry said in a statement on its Web site.

Analysts said the softer data may mask changes brought on by shifting demographics, as higher paid baby boomers retire from the job market.

Household income among more than two people increased 7.6% in June, as companies paid out higher bonuses.

Economists said it was too early to draw any conclusions from the June wage data, given that many large manufacturing firms are not reflected in the preliminary report and the timing of bonus payment could create distortions in the data.

""There seems to be a good chance that the June figure will be revised up," Lehman Brothers' Shiraishi said.

Traders were pricing in a 51% chance of a 0.25-percentage point interest rate hike at the Bank of Japan's Aug. 23 meeting, up from a 47% chance Monday, according to calculations by Credit Suisse.

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